The New York Review of Books 60 (2023), 10

None of this had to happen. In the fall of 2008, amid the great shipwreck of the international financial order, an anonymous person or group of persons writing under the name Satoshi Nakamoto proposed a new electronic cash system called Bitcoin. In the “white paper” proposing the system, initially circulated to a cryptography mailing list, Nakamoto claimed that it would “allow online payments to be sent directly from one party to another without going through a financial institution.” In order to avoid the problem of users spending the same intangible electronic cash twice, Nakamoto proposed something called a “distributed timestamp server,” now generally known as a “blockchain,” which is a kind of digital ledger. Anytime someone made a payment, it would get added to the ledger, and the ledger would be a permanent, open, transparent record of all payments. Unlike banks, there would be no central repository, no single authoritative copy of the ledger. Instead, every participant in the network would hold a copy.

When a transaction happened, the participants would race to do the difficult computational problems the system required to verify it relative to all previous transactions in the ledger, and the first participant to verify would be awarded with new bitcoins. This system is called “proof of work.” In this way, new bitcoins would slowly be created, or “mined,” up to an eventual limit, because the computations needed to verify the chain of transactions would continually require more and more processing power, gradually driving the production of new coins to zero, which would also eliminate the potential for inflation. With no centralized authority there was no bank that could fail—and no CEO to prosecute. Thus from the ruins of 2008 was cryptocurrency born.

But Bitcoin (the network is capitalized, the “currency” is not) was and is terrible. Proof of work meant everyone in the network raced to verify every transaction, but there could only be one winner, generating a huge amount of wasted, redundant effort and truly appalling consumption of electricity and computer chips as participants engaged in an arms race to build bigger and more powerful computers. The network could process just a few transactions per second, relative to thousands for companies like Visa, and some transactions could take hours, during which time the price of bitcoins, and thus the value of the transaction, could change.